USD/TRY comes under pressure and tests the 21-day SMA near 6.05

• USD/TRY extends the down move to sub-6.04 levels.
• The 21-day SMA offers initial support for the time being.
• CBRT FSR, GDP, Trade Balance next on the docket.

The Turkish Lira is prolonging its upside momentum at the beginning of the week and is now dragging USD/TRY to lows in the sub-6.04 zone.

USD/TRY looks to trade, data

The pair is trading on the defensive for the second session in a row on Monday amidst marginal volatility and slim trading conditions in the global markets due to the holidays in the US and the UK.

In the meantime, the absence of fresh developments in the US-China trade front appears to be supporting the positive mood around the riskier assets and helping the Lira to regain some ground lost and shift its focus back to the psychological support at 6.00 the figure.

On the domestic front, the rerun of the municipal elections in Istanbul later next month continues to be on top of the agenda, while upcoming events include the publication of the Financial Stability Report (FSR) by the CBRT and releases of the Trade Balance figures and GDP for the first quarter.

What to look for around TRY

The selling interest around the Turkish Lira appears somewhat alleviated at the beginning of the week, motivating the pair to extend the rejection from recent tops. As usual, trade effervescence should remain as key driver in the EM FX space, while frictions between the AKP and its main opposition party in the run up to the municipal elections in Istanbul are also emerging as another source for Lira volatility. Further out, potential US sanctions following the purchase of the Russian missile defence system keeps lingering over the country as well as sanctions over Iranian crude oil exports. Additionally, the independence and credibility of the CBRT should remain under the microscope against the omnipresent conflict between the government and the bank’s authorities. Recently, another focus of attention has emerged after the IMF urged the government to start implementing reforms aimed to bring back stability to the country’s fundamentals.

USD/TRY key levels

At the moment the pair is losing 0.50% at 6.0519 and a breach of 6.0344 (low May 27) would open the door to 5.9472 (low May 10) and then 5.7870 (55-day SMA). On the other hand, the next barrier emerges at 6.1516 (high May 23) seconded by 6.2457 (2019 high May 9) and then 6.8353 (high Aug. 30 2018).